Just 2 Minutes - Interviews by Kamil Sarji

24-Hard Money Lending Explained: Rules, Risks, and Rewards with Glenn Andreoni

• Kamil Sarji • Episode 24

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Dive into the world of hard money lending with Glenn Andreoni from the Law Offices of Glenn J Andreoni, Inc. Discover how hard money lending works, why it’s crucial for investors, and how to navigate risks and rewards. Glenn shares decades of experience on vetting borrowers, evaluating properties, setting interest rates, and handling foreclosures. Learn the differences between private and institutional loans, the importance of exit strategies, and why hard money is essential for certain real estate investments. This episode provides invaluable insights for anyone considering private lending, buying a fix-and-flip property, or understanding investment lending in-depth. 

Here's the full video interview: https://youtu.be/rqIZRWBNpY0

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Kamil Sarji:

Welcome, everybody. I'm Kamil Sarji, the broker owner of Gold Door Realty. And today I have Glenn with me. Glenn, you want to tell us what you do?

Glenn Andreoni:

Hi. Thank you, Kamil. Thanks for inviting me. My name is Glenn Andreoni. I am an attorney. I've been an attorney for 32 plus years now. Going on 33, actually. I have an office in Lincoln, Rhode Island. I'm a Massachusetts attorney, Rhode Island attorney. Pretty much with a concentration in real estate matters. I've personally done a lot of land development. I've represented a lot of land developers. I've personally done a lot of private lending. I represent a lot of private lenders. And I also do a lot of tax sales. I represent municipalities in the state of Rhode Island. Probably about, almost three quarters of them in the state of Rhode Island when they've been closed. You know, the municipalities auction off their property for nonpayment of delinquent taxes. They hire my company, a subsidiary of my law firm, basically, Rhode Island Tax Titles, to conduct their tax sales.

Kamil Sarji:

And if you live in Rhode Island and you haven't heard the name, Glenn Andreoni Like, I don't know, you're probably not living in Rhode Island. Everybody knows you.

Glenn Andreoni:

Thank you, Kamil. I don't know if that's good or bad. I like to go under the radar, but I don't know if that's good or bad. That's probably because of my age, actually. My daughter, Brianna Andreoni, is an attorney as well. She's been working for me.

Kamil Sarji:

Which is awesome.

Glenn Andreoni:

Yep, which is awesome. But thank you for the compliment. I don't know if it's a compliment or it's just an indication of my age and the years I've been doing this for.

Kamil Sarji:

So this show is called Just Two Minutes, and basically for the first two minutes I'm going to ask you some random questions. And then after that we will go into the topic for today, which is hard money lending. Very exciting. So I got my timer here. Are you ready for action?

Glenn Andreoni:

I am.

Kamil Sarji:

Okay, ready? Three, two, all right. So what do you like the most about plants?

Glenn Andreoni:

Plants! Uh, their color. I like, I like the color of plants. Interesting question. I like that, Kamil.

Kamil Sarji:

How do you think Popeye lost his eye?

Glenn Andreoni:

Um, probably chasing olive oil. Good answers?

Kamil Sarji:

Yeah, I mean, I was just curious what you think, because I don't know. If ants took over a home, right, if you've got this investment property, and 90 percent of the home is taken over by ants, what would you do?

Glenn Andreoni:

Call an exterminator?

Kamil Sarji:

90 percent of them. That's scary. Would you dump the house?

Glenn Andreoni:

No, no, I'd call him an exterminator. Just because there's ants in the house doesn't necessarily mean there's damage in the house, right? Depends what kind of ants.

Kamil Sarji:

Yeah, right.

Glenn Andreoni:

By the way, for the record, he did not ask me these questions, or give me these questions before, but keep going, my friend.

Kamil Sarji:

Okay, um, uh, fishing. Salt or fresh?

Glenn Andreoni:

Salt.

Kamil Sarji:

Yeah, you like fishing?

Glenn Andreoni:

My son and I go saltwater fishing. Actually, this past weekend we went saltwater fishing off of a jet ski. Our jet skis.

Kamil Sarji:

Oh, cool.

Glenn Andreoni:

It's pretty cool, yeah. Didn't catch anything, but.

Kamil Sarji:

I never thought of doing that.

Glenn Andreoni:

Yeah, it's pretty fun.

Kamil Sarji:

What's your most, like, favorite fish to catch?

Glenn Andreoni:

Um, I like blue wheat thrown back in. Um, I feel bad for the fish, actually, believe it or not. But, uh, they give a good fight. But I like blue fish. My son likes, you know, um, bass, sea bass. Um, he likes to keep them and fillet them and eat them. But I feel bad for the fish, so I like to throw them away.

Kamil Sarji:

Alright, awesome.

Glenn Andreoni:

Interesting question. I wasn't expecting that.

Kamil Sarji:

When I say random, it's like

Glenn Andreoni:

I didn't hear the word random. I thought it was going to ask me about real estate questions. But go ahead.

Kamil Sarji:

Well, that's easy questions for you. While you're sleeping, you're answering the questions.

Glenn Andreoni:

Yeah, yeah.

Kamil Sarji:

All right, Glenn, that's awesome. Thank you very much for coming here. It's like,

Glenn Andreoni:

thank you.

Kamil Sarji:

You do a lot of things, but really excited today to talk about hard money lending because a lot of people don't know what that is. When I say hard money lending, people sometimes envision the guy with the baseball bat.

Glenn Andreoni:

No, those who Yeah, those days are over. Hard money lenders, a lot of hard money lenders, but in some states they call it bridge financing. But basically, it's, those days are long gone. It's very similar to institutional or bank lending or You know, going to Bank of America or Citizens is, the big differences between hard money lending and we'll call it institutional lending is that the hard money lender, such as myself, either an individual or it could be an LLC or it could be an IRA, it could be, which we'll discuss at some point, it could be a number or it could be an institution or a family trust or, you know, a wealthy company. Family that wants to put out their money. It could be an individual that raises money from other people and it's registered with the SEC. So there's different hard money lenders.

Kamil Sarji:

So it could be personal, it could be someone could set up a corporation and have that money in there.

Glenn Andreoni:

Yeah, generally, like I have limited liability companies that do hard money lending, that I do hard money lending through. But there's all different avenues to set up hard money lending. It's a good investment, like for myself who understands. Real estate, been involved in real estate. I've been actually doing hard money lending for I think 30 years, maybe probably 31 years now. I think my first or second year out of law school, I had a client that was a builder, good friend of mine and he wanted me to invest in it and he said, why don't you give me a loan? I gave him a small loan and it kind of took off from there basically. Now I do a lot of it. I enjoy it. It's all legit. If somebody doesn't pay, we foreclose, we don't break legs. You know, a lot of people think that, but it's not the case. We have to borrow, just like an institutional lender, sign a promissory note, which is a promise to pay, you know, 100, 000 dollars back at whatever the interest rate is.

Kamil Sarji:

What is the going rate, usually?

Glenn Andreoni:

So the rates range between 10 to, I've seen, 20%, you know. There's also points that most hard money lenders charge. And those points are 0 to 10 points. You know, a point is a percentage of the loan. So one point on a 100, 000 dollar loan is 1, 000 dollars. You know, five points on a 100, 000 loan 100, 000 loan is 5, 000. Most hard money or bridge lenders will charge the points up front. So if you know, let's hypothetically say you're given a 100, 000 dollar loan and you're charging two points Well, the closing attorney is going to get funded possibly 100, 000 But they'll get 2, 000 back or they'll possibly just fund 98, 000

Kamil Sarji:

Yeah, because obviously they don't need to bring the 2, 000.

Glenn Andreoni:

Right. Ultimately the borrower at the closing is getting 98, 000.

Kamil Sarji:

Okay.

Glenn Andreoni:

You know, the loan amount less the points. Then the interest rate, generally speaking, most hard money lenders calculate interest based, like, interest only payments. So hypothetically, again, a hundred thousand, twelve percent would be a thousand dollars a month.

Kamil Sarji:

Okay.

Glenn Andreoni:

You know, in interest.

Kamil Sarji:

Because you take that, the twelve months divided by

Glenn Andreoni:

Yep.

Kamil Sarji:

Okay.

Glenn Andreoni:

You take the loan amount times 12 percent divided by 12, basically. If it's 12%, if it's 10%, if it's 15%, whatever.

Kamil Sarji:

So, okay, so I just want to go back to the range you were saying. What could cause a hard money lender to say they're going to give 10 percent versus 20%.

Glenn Andreoni:

So we look like, I like to look at, and I have some notes here. I like to look at the property itself. When I'm vetting a hard money loan, I like to look at a number of items. Like I like to look at the borrower, right. But I don't generally pull that credit. I don't really care what their credit is. I want to see it.

Kamil Sarji:

Before you go see it, do you come up with the percentage or is it after you see it?

Glenn Andreoni:

No, it's generally after. Unless it's one of my long time clients or borrowers that I know, that I trust, that I know they know what they're doing. I know when they buy property it's a good deal. But I get a lot of newbies, we call them, new borrowers, that I don't know if they're getting a good deal on the property, so they could be overpaying for the property. And this market's kind of difficult to tell. So if that's the case, I generally, you know, want to It depends, it ranges maybe 20 to 30 percent down. Most hob monies want, hob money lenders want a good chunk of change down. Right, we don't necessarily, we can close quickly. So basically the difference between hob money lenders and institutional financing is we don't care about credit for the borrower. Short term, you're almost better off going with a hard money lender. So a lot of my borrowers, let's say, hypothetically, they take a loan out with me and it's going to cost them 10, 000 dollars, right? After they pay interest and points. Okay, and it's a 100, 000 dollar loan. And it's a 200, 000 dollar purchase. I would say make a cash offer of, let's say they're asking 200, 000. I would say make a cash offer and deduct whatever you're going to pay me. And you'll generally, as a buyer, get the property. You'll, generally speaking, you'll beat out a person that's going for institutional financing with less of a purchase price, believe it or not. So if you say, if the property's listed, no property's 200, 000. So it's a bad example, but let's just say 200, 000 and it's going to cost you 10, 000 to borrow from me. Or for 190, 000 cash. And when we say cash, it's hard money, basically. I like to vet it before. I don't want to tell a borrower that I'll give you 100, 000 dollars. Without vetting it.

Kamil Sarji:

Looking at it. Yeah,

Glenn Andreoni:

looking at it. You know,

Kamil Sarji:

so it depends. So you're saying the interest Depends on

Glenn Andreoni:

Yeah.

Kamil Sarji:

How it looks.

Glenn Andreoni:

Yep.

Kamil Sarji:

And the money down that they, I mean the value versus how much the cost to repair and,

Glenn Andreoni:

yeah. So that's, there's all different types of loans that I can give. There's new construction, so a builder or borrower comes to me and they own a lot, or they're gonna buy a lot and they want to build a house, a 2000 square foot house.

Kamil Sarji:

Mm-Hmm.. Glenn Andreoni: So I'll give. You know, Kamil comes to me and owns a lot in Providence and wants to build a, you know, 2, 000 square foot house. It's gonna cost him, I don't know 250, 000, right? And you already own the lot. I'll give you a construction loan for that 250, 000 and give it to you in disbursements. I'll say, okay, what are you going to do? And you're going to say, well, first I'm going to put the foundation in. And then I'm going to frame it and roof it and put the windows in. You know, so I'll give you disbursements based on that. It's like prove that you did the foundation. Show me proof that you paid for the foundation so I can pay you.

Glenn Andreoni:

Correct. So, oh no, I'll go down and check it. I'll send somebody down. Yeah. We do. I mean, again. They can send me pictures. You know, most of the borrowers are decent, hard working people, and it's not worth them to go to Bank America or Citizens and get tortured. And first of all, a lot of these lending institutions, traditional lending institutions, won't give a loan, a construction loan, on spec houses. You know, if it's your own house that you're building for yourself, they'll probably give you a loan. But if it's a spec house, it's really hard to get a loan. So, a lot of these builders need Financing, quite frankly. And that's why I come in. So, and also there's a rehab, you know, Kamil buys this property, needs to rehab it, needs money to rehab it. It's tough to get a loan. So a lot of people go for private financing there, and then you give them a certain percentage of the purchase price to buy it, and then you give them, based on what type of work Kamil wants to do to his property, you give them a percentage of the work. If you need a hundred thousand dollars, maybe they'll give you a hundred percent of that, a hundred thousand as the work goes on, or maybe eighty thousand of the hundred thousand work.

Kamil Sarji:

Okay.

Glenn Andreoni:

So that's kind of the second type of loan. Then there's the flip loan, where Kamil's buying, I'm using you as an example, Kamil's buying a property, and You know, basically wants to flip it, looks at it, getting a really good deal, knows the seller, getting a good deal, discloses to the seller, or signs the contract, but needs to close on it, and needs to basically flip it. There's those type of loans as well. There's all different type of loans. Well, the loans we don't do is owner occupied. I don't do any owner occupied loans, primary residence. It's all commercial. And there's also, you know, somebody wants to buy a restaurant. And they're running a restaurant, but we don't give business loans, but we'll give the loan on the real estate.

Kamil Sarji:

Okay, so let's take a few steps back. Okay, so let's say I have 500, 000 dollars cash that I inherited and I just, it's sitting in my bank account. And I come to you and I'm like, Glenn, I want to be a hard money lender. How does someone become a hard money lender?

Glenn Andreoni:

Well, you got to be careful. You really have to understand values of real estate. I mean, it's not that difficult, but you just have to know. I think somebody that's kind of just walking into it, first of all, it's a good investment because of the stock market, who knows, especially there was a crash just recently in a month was yesterday, right? The stock market goes up and down. You're not going to make as much as a hard money lender as you will in the stock market in a day. So it's a small. You know, relatively small growth, but it's a, I shouldn't say small. It's a good growth, but it's a longer process. You know, it takes years and years to really make decent money and it takes a lot of money to put out there, but you can get a good return on a half a million dollars, you know, at just that 10 percent alone is 50, 000 dollars, right? Plus 2 points, another 10, 000, that's 60, 000.

Kamil Sarji:

And then at the end of it, you get your money back.

Glenn Andreoni:

And at the end of it, and if you don't, you have to foreclose, you know?

Kamil Sarji:

We're gonna go through the foreclosure part. Yeah. Excited to talk about that too. So, but that person that comes to you, how do you, as far as paperwork, what do you do?

Glenn Andreoni:

Yeah, so what I would say, if Kamil came to me and said, Glenn, I just inherited 500, 000, first I'd say congratulations. Sorry for your loss, whoever you inherited it from, but congratulations with the inheritance. Then I would say, do you have a borrower already? Yes, my cousin or a client of mine or a friend of mine is buying a three family in, you know, Pawtucket for 320, 000. I'd say, okay, well how much are they putting down? I don't know, I gotta ask them. Okay, you ask them. How much you think, Len? I don't know, it depends. Is the property worth 320, 000? Is it worth 290, 000 and they're overpaying for it? Or, is the property really worth 380, 000 and they're underpaying? So,

Kamil Sarji:

that kind of So, you kind of like, advise them on like, what are they going to do with this money and protect them.

Glenn Andreoni:

Right, and I'm not a realtor. I don't really know values per se. So, what I do is, I would say, Kamil, you have half a million dollars. And you have your friend who wants to borrow 320, 000. Or they're buying 320, 000. Why don't you hire a realtor? Kamil happens to be a great realtor.

Kamil Sarji:

I hire myself.

Glenn Andreoni:

Yeah, hire yourself. Go look at the property, and worst case scenario, what do you think of the property? At a fire sale, because the worst case scenario, you're going to have to foreclose on this person and sell the property, and that's going to cost you money. You're going to have to continue to pay the taxes on the property, or else there'll be a tax sale, as I said earlier, we do tax sales too. You're going to have to continue to pay the insurance. This is if your borrower, your cousin, hit some financial troubles and can't pay you or whatever, or discovered that there's a crack beam and the whole foundation has to be, you know, redone.

Kamil Sarji:

So I have to walk into this house and imagine like would I buy this house.

Glenn Andreoni:

Yeah, I mean, I think generally, not only as an attorney, but as an investor, and as an attorney who represent a lot of investors, that you have to really think worst case scenario. You know, you can trust, but you need to verify. You need to trust this person, and I'm sure they have good intent, but anything can happen. The economy can turn. That 320. We haven't, we've, it's been coming up, up, up, up, but it can turn. Uh. I've been through three cycles so far, by the way. Doing it for, as I said earlier, 30 plus years. I've seen cycles, and I've only foreclosed on one person. You know, doing it. So I try to get a good amount of money down, so if the market starts to turn I still have equity and that person doesn't, you know. For instance, the last economy when we had a crash, I had quite a few loans out there and I told all my borrowers, the market's coming down, you need to sell. Like, you need to sell or refinance, get me paid off. And they were upset at the time. A lot of them, they felt like, you know, You know, well, well, you know, I could have got 60, 000. Now, now the market came down. I'm only going to get 40, 000. Let's wait till it goes back up. I said, nope, I'm not waiting. But in retrospect now, those borrowers are so happy. Those sellers, because they would have lost their shirt. Because a year later, they would have lost 40, 000. So granted, they would have made 60, 000 had they sold it in a peak, but the market started to come down. I politely said, you got to sell it. We're losing equity in the property. They sold it. They pocketed 30, 000, 40, 000. But had it, they listened to themselves, and had I not forced them, I can't force anybody, but I suggested that they sell it. Had they not done that, they would have held on to it for another six, seven months, or even a year, and they would have lost money. So all those borrowers that were upset at me back at the last churn, right? When the market come, came back to me and said, Glenn, thank God you told me to do that because, you know, we would have lost our shirt on the property.

Kamil Sarji:

So not only are you their attorney, you're also their consultants.

Glenn Andreoni:

Yeah, I try to do that. That's a perspective that I've always tried to give as an attorney. The attorneys are a dime a dozen. I'm not knocking attorneys. It's hard to become an attorney. But it's hard to find an attorney that will give a perspective, a business perspective, you know, and not that I'm any smarter by any means. I'm not. I've just kind of seen a lot of clients and I've done a lot of investing myself. So I see the mistakes my clients have made and myself, I've personally made. So I try to protect my clients. And like, if you come to me again, to do some private, hard money lending, I'm going to tell you, I'm going to treat you as if I'm doing the hard money lending and tell you exactly what I do. Same with the documents, the documentation. Like, I'll say, okay, I'll be your attorney, I'm going to guide you. So I'm going to say, Kamil, you need to go and get yourself a CMA on the property. Okay? And if the property's 320, I would suggest you talk to the borrower. Let's call them together, Kamil. We get your cousin on the phone and I say, okay, John, John, what do you plan on doing with the property? I'm going to spend 40, Okay, do you have the 40? Yes. Let me see the 40. I want to make sure you have it in the bank. You know, to make sure you have the money to rehab it. So all of a sudden, Kamil gives this guy a loan, and he, and the person doesn't have the money. We have a problem that is stuck. They can't hire people to do it, and now what do you do? So what I would suggest in that case, if they say, I only have 40, 000. I say, okay, great. And it's going to take 40 and they say to you, Kamil, you give me the 320 100 percent and I'll do the rehab 100%. And Kamil thinks, that's good. I say, no, that's not good. I want you, John, to give my client, your cousin Kamil, the 40, 000 at the closing. Then Kamil, as you do the work, will give you the 40 back. So what that does, Kamil, is that now gives you some equity in the property. So the person bought it at 320. At the closing, you gave him 280 or her 280, right? And now, God forbid, something goes wrong. You have 40, 000 cushion and you're holding that money in escrow. If they just stopped paying or God forbid, they pass away or something happens, you now have a 40, 000 cushion to either complete the rehab or just sell it.

Kamil Sarji:

Yeah, so it's kind of like a casino, you know, they have a better chance of winning versus the person gambling

Glenn Andreoni:

Well, they being the private lender?

Kamil Sarji:

They being the buyer. Buyer. Yeah. Or the person borrowing.

Glenn Andreoni:

Yeah,

Kamil Sarji:

I mean. You have a better, like you're protecting yourself from And you have more equity, like your chances of recovering is better. If, if you play your cards, right. And you do the numbers

Glenn Andreoni:

for starters, you have to get a Kamil to represent you as his realtor and do a good job and do some due diligence and say, okay, you're buying this for three 20 great deal. You're going to put 40, 000 into it. You're going to be into it for three 80. I think we can get 500 for it. 120, 000 after you pay realtor's commission, interest, everything else, you're going to make 90, 000 or whatever you're going to make. That's a good deal, right? Or Kamil might say, well, now, by the way, I have you as a realtor, not as a lender. Kamil might look at it and say, you're buying it for 320, 000, you put 40, 000 into it, you're into it 380, 000, you can only get 420, 000. So that sounds good, it's a 40, 000 profit, but you have to pay me as a realtor, you have to pay Glenn Andreoni as a hard money lender, you have to pay the real estate taxes, the holding costs.

Kamil Sarji:

And the number is so close like that, it's risky.

Glenn Andreoni:

Right.

Kamil Sarji:

Like 40, 000, probably not a good

Glenn Andreoni:

So really, if you're an investor, And I know we're talking private lending, but if you're an investor, you really have to have a good team around. You have to have a good realtor. You have to have a good attorney. You have to have a good accountant. You know, you have to have a good private lender. You have to have a good team around you and you have to know what you're doing, work hard and understand it. But I put a lot of credence in the realtors. Good realtor that really understands values. You know, if you want to do hard money lending, what your initial question is, you just got to almost kind of think worst case scenario, but you want that borrower to be able to articulate what their exit strategy is. Maybe they're going to hold the property and refinance. And if they say that, I want to say, okay, are you pre approved? Yes, I am. Who's your loan officer? It's John Smith. Okay, can I have John's number? Yes. Call John up. John, is Kamil's cousin pre approved on this loan for how much? And is it like a hundred percent go? Yes, they just have to submit their 2024 taxes or whatever. They're self employed. So, I want to get a for the exit strategy of refinancing and how clean that is. You know, if all of a sudden I call the loan officer John Smith and John Smith says, They didn't apply yet, I have no idea, I haven't pulled their credit. Well, then I'll call your cousin back, you know, and say, Hey, you haven't even applied, I called your loan officer. They don't even have your credit scores. Generally, I, as a private lender, don't necessarily care about your credit scores. I just want to see you have money to put down, you have a game plan, and you have a clean exit strategy. So the only time that credit score, some private lenders do require credit scores. If I'm doing a large loan, then I'll require that.

Kamil Sarji:

Yeah.

Glenn Andreoni:

But, generally speaking, if, the only time a credit score kicks in is if that person's exit strategy is to refinance and I call the loan officer to make sure that they can refinance and the loan officer needs to know what their credit scores and income are. Other than that, I, as a private lender, don't really care what your credit scores are. I mean, if you're in bankruptcy, obviously, you shouldn't be buying property, but If you have low credit scores and half decent income, I don't really care. I just want to know that you have money to put down, you're a hard worker, and you have a good exit strategy. So that's what I would do for you if you came to me because you inherited half a million dollars. I would say do, do, take these steps to ensure that you're going to get paid. Then as far as the legal end of it, You know, we're going to do just like when we do a closing for Navigant Credit Union, or Milford Federal Credit Union, or Citizens Bank, or Bank of America. We're going to do a title examination on the property to make sure the seller owns it. We're going to do a closing, get the funds. We're going to pay off all the liens and give you a clean title policy. You, Kamil You're

Kamil Sarji:

doing the closing because you already did the title. Yeah, generally.

Glenn Andreoni:

Yeah, well if you Now this is a scenario where you, Kamil, can't You inherited, you're a lender, you're coming to me saying, I got a half a million dollars, I want to do, my cousin wants a loan, can you handle it? So I'm going to say, first vet it, go through those steps that I just articulated, get a good, well, you, you are a realtor obviously, but, get somebody, even get an independent person to go look at it, get somebody in your office, if you're coming to me, to go look at it, give you analysis, try to get some money down from the borrower, get a clean exit strategy, are they flipping it? Are they holding it? You know. How

Kamil Sarji:

long is usually like a hard money?

Glenn Andreoni:

So you, you know, some take, I've done them for in a day on like on a flip deal. That's kind of rare, but usually, you know, six months to a year.

Kamil Sarji:

Okay.

Glenn Andreoni:

You know, what

Kamil Sarji:

happens?

Glenn Andreoni:

So, that's when I assess the situation and see if I feel that the market's starting to come down, therefore my equity's starting to come down for the 40, 000 they put down. Is that now shrinking? So the property that they bought for 320, 000 that I have a mortgage for 280, 000 on, is that property now worth 300, 000? So my equity now is shrinking. It's only 20, 000. So that's when I articulated earlier that I would, when the market crashed, I was telling my borrowers, You need to pay me off either refinance or sell it quickly because I saw that market coming down That's why I do short term. That's why I don't do I've had clients that it would do like 15 year notes I'm like you're crazy, you know, cuz you don't know what the markets gonna and they didn't realize that You know, I said do it one year and if the market sustains itself like it has been for quite a few years now Yeah, crazy. That's just they didn't know it's just

Kamil Sarji:

interest only

Glenn Andreoni:

No, usually if it's 15 years of doing principal and interest, amortized over 30 years or 15 years. Okay,

Kamil Sarji:

wow, that'd

Glenn Andreoni:

be Yeah, but I've had, like, other clients that have gone to other attorneys that the attorney just, they came to them and said, I want a 15 year, I'm selling my property, I'm gonna hold a note, it's a three family in one socket, I'm gonna hold a note for 15 years, because that's what they want. Interest

Kamil Sarji:

rates. And they

Glenn Andreoni:

went to another attorney and the attorney did all that. And I say, but if somebody comes to me and they're selling a three family and they want to hold a note, I say, well, first of all, make sure it's not owner occupied. Secondly, don't do a 15 year, do a year with a balloon, do a 15 year amortization with a year balloon. With the, like, so every year you can assess the situation and see, you know, if the market's coming down and you're losing the equity because today's market, you know, you might get. 500, 000 for three family and tomorrow's market, it might only be worth 300, 000 or it might be worth 700, 000. Who knows? But at least you as a lender can call the shots as opposed to now, the borrower's got a 15 year note. They call the shots. If the market, you know, when people are upside down, we years ago, I did quite a few short sales. I had like I think 15 people working for me just doing short sales. Yeah. We had a pretty big short sale, relatively big Rhode Island standards, relatively big, you know, short sale practice in my office, representing sellers. And you know, when the market turns, people just feel uncomfortable cause they don't have equity and they just stop paying the mortgage or whatever. They get laid off or for whatever reason, you know, when the market turns, there's a lot more foreclosures and a lot more short sales. So as a private lender, you got to hedge those. By shrinking the length of the term, and you as the private lender should be in charge of whether or not you're going to extend that or not. I've extended mine. I have notes that are going years and years, because the people pay great, there's plenty of equity, you know, I like the people. I mean, there's no prob I tell them It's a no brainer. Yeah, I tell them, listen, my rates are higher. You should go to Gold Door Institutional and get lower although they're not much higher today, bank rates are relatively high too. Hmm.

Kamil Sarji:

Hmm.

Glenn Andreoni:

So, you know, I tell my clients go to Institutional Bank, refinance, and you should try to get a lower rate and it'll, you know, save you money.

Kamil Sarji:

Yeah. So why not loan to Owner Occupied?

Glenn Andreoni:

So, Owner Occupied, if you lend to Owner Occupied, there's all different rules and regulations. RESPA rules, TRID laws, Frank Dodd, the Dodd Bill. It just, you know Different disclosures and different rules and regulations that these lending institutions like Bank of America, they have, you know, Wells Fargo, they have 5, 000 people that make sure you're in compliance with all the federal rules and regulations.

Kamil Sarji:

Sounds like it's risky giving it to a home, home, to an owner occupied.

Glenn Andreoni:

You shouldn't. Yeah. When a client comes to me. A hard money client and wants to give a loan to an owner occupied, I just say, Listen, I don't want to be involved in it. I don't think you should do that, because you have to comply with the rules and regulations that the federal government I can't assure that you'll be in compliance with that. I'm not a regulatory attorney here. I don't know There's, like, now you have to give the CD, closing disclosure, it used to be called settlement sheet, three days in advance. Well, primary residence, you have to do that. Three days in advance. You got a three day right to cancel. So it's all these little rules that you have to give. You know, the API, you can't change it. You got to give good, uh, truth in lending. It's just, it's regulated by the federal government. Rightfully so, by the way, it's owner occupied, you know, as opposed to commercial person that has no intent to occupy it and they're flipping it. It's for business purposes, you know?

Kamil Sarji:

So would you suggest if I wanted to do the hard money lending. Would you suggest it be under my name, or putting it under, uh, some

Glenn Andreoni:

No, I mean, if you do one a year, there's no harm in putting it in your name. You could certainly consult with your accountant, because it's income to you. It's interest income that you have to claim. You have to pay federal income taxes on it. You have to pay state income taxes. It's just like interest that you earn in a bank. If the, if the 500, 000 sitting in the bank and you're getting You know, 3 percent from a bank, right? What's that? 15, 000? Right? Yeah. If it

Kamil Sarji:

was in the bank, I'd probably get 10. Yeah, well today the rate's a little

Glenn Andreoni:

bit higher, you know, 10 percent would be 15, 000, right? So that's interest income to you, right? Just like when you lend a bank, lend your money out. It's interest income. You have to claim that federal, you know, in your taxes. So I always say consult with your accountant relative to whether or not you should form an LLC. But if you're doing one a year

Kamil Sarji:

As far as protecting yourself, Does it make sense? Well,

Glenn Andreoni:

if it's, some people do it for, you know, to be anonymous because they don't want their name. I have LLCs. I don't want my name plastered all over the registries that Glen Andrioni's giving loans, you know. So some people want that. But if you, again, if you're doing a few, I don't think there's no need to, unless your accountant suggests that. But if you're doing a few, A couple a year, then I would suggest doing a limited liability company or corporation, setting it up for that purpose. And so it's got tax implications and anonymity if you're doing an LLC, you know, besides the fact that, you know, you could get sued in certain situations where you're a lender, for instance, you give a loan on a, on a mill and Providence, and they find out it's contaminated. So you as a lender, you know, could potentially be liable for the cleanup. And if it's an LLC, you're going to be a little more protected than if you did it individually. A lot more protected, actually.

Kamil Sarji:

Yeah, that's a whole nother thing. Brownfield. Yeah, but even with that like going with a hard money lender versus financial institution for a commercial loan. Commercial loan, they want to make sure there's no contamination. They do the survey and Yeah, but with hard money lender, it's

Glenn Andreoni:

Well, I will like if I have somebody come to me for on a gas station or mechanic shop I'll 100 percent say I want to I want a phase one environmental. I want to clean environmental.

Kamil Sarji:

Yeah,

Glenn Andreoni:

you know or something that You know, it was an old mill, factory that I have reasons to believe could be contaminated. That I, even as most hard money lenders, if you know what you're doing, will require that. You know, to protect themselves because you don't want to be liable for that cleanup.

Kamil Sarji:

Yeah. Right, you're going to have to pay for cleanup. You're not even, you're like, I just bought this place. I didn't even know, but too bad.

Glenn Andreoni:

I just recently gave a hard money loan to a property in Massachusetts. I don't want to say the address of the people, but we found out the last minute that everybody knew everybody in the town knew that this property was contaminated at one point, I guess the owners were using it as like, I don't know, to sell oil or something and the oil leaked and it was a mess, except my buyer. And I, we didn't know. We kind of found out, my buyer found out, when he went to get insurance on the property, and his insurance agent, so we would have had no idea, why would we, it's a single family house, why would we even think there's an environment, there was no indicia of evidence making us to believe that there'd be an environmental problem. My client went to get insurance, his insurance agent said, that property's an environmental mess, you can't buy that. And he's like, what are you talking about? So we went to another agent, so they, for an apparent, I don't know why, but they red flagged that property. So at that point, we went back to the seller, who's a municipality, and we basically asked them what was going on, why didn't you disclose it, and their position was, well we cleaned it up, it's no longer a problem. So to make a long story short, I told my buyer, I'm not giving a loan on that until we really look into this. And I'm not an environmental attorney. I'm not an environmentalist. So you need to hire an environmentalist. I referred somebody. He did a great job. He looked at all the reports and said, nope, it's cleaned up. You're fine. You're good to go. We submitted that report to the insurance. Insurance said, no problem. We'll insure it. Perfect, fine. It's just, it's not easy being a hard money lender, but if you want to be successful in life, nothing, is it easy being a broker? Is it easy being a realtor? Is it easy being an investor? It's not easy being an attorney. You know, everything's work and due diligence, and you know, you got to think things out and dot your i's and cross your t's. I think no matter what profession you're in.

Kamil Sarji:

Can you tell me a moment where you went to check out a home or a property and it was like a bad situation? You had to get out of there?

Glenn Andreoni:

It just recently, so I, I generally don't, I'm so busy now running my practice and tax sales and lending. I generally don't look at the property, I send people out. You know, I tell the borrower, you gotta hire this person, they'll go out and they'll give me a CMA. So I did send somebody out just about a month ago. They went to a property in Providence to go look at it. Unbeknownst to them, there were squatters in there that were, you know, unfortunately, it's a sad situation, but there were squatters that had a, one particular squad had a needle. Yeah, my poor person, who was a dainty, you know, female, was scared to death. She said she ran out of there. She was just scared because they were like, What the F are you doing here? And they kind of got aggressive with her. So that was a scary situation. And she's like, she was like shaking. Glad I can never do that. Like you can't. I said I had no idea people were living there, you know. You know, nobody knew that. Again, there were squatters illegally living there. It's one thing to have squatters, but, and it's another thing to have squatters that are shooting heroin or whatever they shoot up into their arms. I don't even know, I'm not into drugs, so I don't know what they were shooting up. But it's a whole

Kamil Sarji:

In movies, that's what they're doing.

Glenn Andreoni:

Yeah, and it's a whole other thing to have this person basically threaten my person that's giving me the CMA. Like, what are you doing here? Start yelling at her, you know? So, it's a scary situation, you know? But, so I kind of learned. But, so that just happened literally a month ago. Probably less than a month ago, but it just happens. What did they do?

Kamil Sarji:

Got the cops in there, get them out?

Glenn Andreoni:

Yeah, so we told the seller that there's people living there. We're not touching this property until, you know, you take care of it. So I

Kamil Sarji:

What did they do, throw smoke, smoke bomb at you? Yeah,

Glenn Andreoni:

we, I don't know what they did. I didn't get involved in that part. I don't know. The police went in and removed the squatters. I don't exactly know.

Kamil Sarji:

Wow.

Glenn Andreoni:

I have no idea. But I know they get out. That's all I do know. So it's scary, you know, but that's relatively rare, you know, usually when a seller selling property, you know, unless you're dealing with like a foreclosed property, which a lot of people use hard money lenders. If you go to a foreclosure and you buy the property because you have to close it in 30 days, right? So if you go to a foreclosure, right, the bank's doing a foreclosure, it's right at the property and you buy the property, right? You have 30 days to close. It's going to be very difficult for you to go to a lending institution and get a loan within 30 days. You know, first of all, that lender is going to require an appraisal. You can't get in the property because it's a full closed property. There might be tenants in there.

Kamil Sarji:

You

Glenn Andreoni:

know, it's hard, so there's a big demand for private lenders.

Kamil Sarji:

Okay, so we get the home. What happens now if someone is late on payments to pay you?

Glenn Andreoni:

So what happens, Kamil, is I generally, you know, say, listen, you're a month or two behind, you got to get caught up. And most of my people do, you know, or they're busy. In the process of refinancing or selling the property, I work with them, but I don't want them to be late anymore. I mean, years ago, when I kind of first started doing it, I wasn't getting monthly payments. I would just let it accumulate on slips. But I just don't like that anymore because you're eating up all the equity too. At least with the monthly payments, I'm sustaining that income and I'm keeping the equity in check. It's not going, it's not shrinking every month in the sense that I'm losing money, you know? So,

Kamil Sarji:

yeah.

Glenn Andreoni:

But generally speaking, just like a regular bank, I don't send notices out. I generally, because I know most of my borrowers, you know, on a personal level and, you know, we generally just call them and they, you know, Oh, I'm out of the country. Oh, I mailed it or whatever and we get the payment. I generally don't have a problem.

Kamil Sarji:

Okay, so now at what point does it get serious?

Glenn Andreoni:

It gets serious when they avoid me. When there's no communication, you know, I just think that's the worst thing in the world. So it's like me as a lawyer, right? If I have a problem, something went wrong with a file, the worst thing, and a client calls me, the worst thing for me to do is to just avoid the client, or avoid the problem, as a realtor. If you have a problem, we all get problems, we all make mistakes. If you have a client that, I don't know, something happened, the client's upset, if you avoid the client, it's gonna make it worse, in my opinion. So I like to attack it right away. I like to, you know, if a person's not communicating with me, something's wrong. You know, unless they're sick, or they have a, you know, some, you know, Good legitimate excuse as to why they stopped communicating. I just don't understand that because I always, again, take the philosophy that communication's the key. If, you know, again, I try to communicate. If I just avoid my client, that's I can be despised for that. They can file a complaint. against me as a lawyer.

Kamil Sarji:

Yeah. But

Glenn Andreoni:

that's not the reason why I communicate, it's just I get nervous if I get two or three calls that I didn't get to. It's now 9, 30, 10 o'clock at night. It actually bothers me. I stay up thinking, should I call him? Should I not call him?

Kamil Sarji:

Integrity.

Glenn Andreoni:

Yeah, and I might send him an email saying, hey, I got your message, but it's too late now. I'll call you tomorrow morning, or call me tomorrow morning, or send him a text. If it's a person I know, I will call them at 10 o'clock. I made a call last night at 10. 15 to a client, because I know they stay up late, you know. So that's critical. So if a borrower is just avoiding the problem, that's not good. Then you've got to take legal action, you know. Meaning you've got to start the foreclosure process. Again, just like Bank of America, Citizens, Navigant, Milford Federal, all the lending institutions.

Kamil Sarji:

What is the process to foreclose?

Glenn Andreoni:

So, it's pretty extensive. I have an attorney in my office that does foreclosures, actually. We refer, I'll refer it out to him, and so do a lot of my clients. And, you know, first is notice. You know, notice that you're in default, pursuant to the mortgage covenants. Then comes advertising, basically. Right, then you gotta start advertising. That gets really expensive. You know, possibly in a Providence Journal, depending on where the property is, and then basically you have a foreclosure right at the curb. So it's, you know, probably a three month process, all in all, two to, you know, three months.

Kamil Sarji:

Foreclosure at the curb, like

Glenn Andreoni:

Meaning there's an auction.

Kamil Sarji:

Anybody can buy it for whatever price. It's all

Glenn Andreoni:

advertising, there's a lot of There's an auctioneer. There's a lot of, you can't

Kamil Sarji:

take it over yourself.

Glenn Andreoni:

No, no, you can't without, not without legal. Foreclosure, no. You gotta go through all the statutory requirements.

Kamil Sarji:

So I have to bid on this house that I lent money to? No, no.

Glenn Andreoni:

There's a bidding process and you don't have to accept the bids, you know, but generally you, there's a bid and you owed 200,000 and somebody, if you have enough equity and you played your cards right, somebody bids the 200 and you get paid off. They have 30 days to close, as I said. That person's probably going to get hard money. You know, and you have 30 days and you get paid off.

Kamil Sarji:

So, Glenn, I'm going to ask you Fortunately, I've only done

Glenn Andreoni:

it one time. As I said earlier, I've only had to do it one time in my loans. Wow. Very conservative. Yeah, I'm very conservative. I work with my people and I try to get them out of the deals, you know. Okay,

Kamil Sarji:

that was my question is like, what percentage?

Glenn Andreoni:

I know somehow moneylenders, they foreclose 10 times a year. And I think I do more loans than them. But I have some, what I consider good solid borrowers. I vet them pretty good. I think I have a good process. It's not that I'm any smarter, I'm just probably more nervous than most people. I work so hard, you know, for my money, I don't want to lose it, you know, because it's my money. Whereas I think some of the hard money lenders, it's not their money. They take other people's money and they put it together. So you'll take more of a risk to get that money out there. As opposed to your own hard earned money, you're nervous, you know.

Kamil Sarji:

So out of the deals for all these hard money lenders, What percentage end up in foreclosure?

Glenn Andreoni:

Again, I think it depends who the hard money lender is. My percentage is extremely low.

Kamil Sarji:

Not for you personally, like for people that you've done.

Glenn Andreoni:

I don't necessarily think it depends on the borrower as much as the economy. We've had a good economy. Let's face it. The market's been going up and up and up and rather than foreclosure, people are just going to sell it and grab money. So the foreclosures with hard money. In my opinion, tend to take the same patent as regular bank foreclosures. We don't have a lot of foreclosures now, right? Although they're saying it's starting to build up a little bit now, but it's not a tremendous amount of foreclosures because values are so high, right? So it's kind of the same. I think it's the same patent as the market starts to turn. And these people taking the private financing slash hard money out, bridge loan, whatever you call it, they have plenty of equity, so they're not going to get foreclosed on. So again, that's, that's a hard, I, I get your question, what percentage? Ten

Kamil Sarji:

percent? Five? No, probably

Glenn Andreoni:

five. It's so hard to, I don't know, I don't know the percentage, but I know the percentage increases exponentially. When the market starts to come down, you know, when that market comes down, if it's 3%, it might go up to 30%, you know, because now how do you pay the hard money lender off? You can't sell it. You can't refinance cause it doesn't appraise out and you can't sell it. So your exit strategy is out the window, which is exactly why we do short term lending. You know, because within that one year period, the market's not gonna drop, it's not gonna generally drop 20%. If it does, we got major economical problems in the country. You know, so that's what I do. And again, I might extend the note for six more months based on, so there's a number of factors based on the borrower and based on the value of the property and the economy.

Kamil Sarji:

Okay, how many percentage of borrowers end up getting a bad deal or they just get into a home and they're like, Oh my God, this is like a nightmare. It's worse than I thought. I need to get out of this and I'm stuck.

Glenn Andreoni:

I think most of the people that are doing their proper due diligence, you know, and by the way, sometimes Hiring the right private lender, for instance, me, I don't want to gloat, but I had a client one time that came to me for a hard money loan She was buying a property, I think it was in Warwick And it was in a flood zone, she didn't realize that And the seller was trying to dump it Cause the seller, cause when you're in a flood zone you can only do a percentage of the rehab Like I say, 50%, right? Well, this seller did 80%, so it was a cease and desist order. This poor buyer said, Oh, I'm getting a great deal. I want to go in. So, when we went out there, when I sent my person out there, they said this, they did some due diligence. They realized it was in a flood zone. They realized that it was a cease and desist order. They realized that wasn't a record either. So, most buyers wouldn't have known that, right? How else do you, my buyer didn't know it. We found this out. I, as a lender, found it out.

Kamil Sarji:

The new buyer would take that on? The cease and desist?

Glenn Andreoni:

So, the problem is that the town, you know, the city of Warwick, I believe it was Warwick, said no, the person went, I don't think anything was recorded either. I can't quite recall, but the poor buyer was walking into innocently thinking that she's getting a good deal, not realizing, wait, this property's in a flood zone. I can't do what I want to do. I can't rehab 100 percent of this. You know, or sometimes I've had another situation similar to that, where they can't come to me. They want to do the rehab and we find out it's in a historic zone. I said, Oh, really you want to do this? I said, you realize if you're rehabbing a property, it's in a historic zone. It's probably going to cost you double what you think, because you can't just rip, you know, rip the casing of the windows off, or, you know, you got to kind of restore that to a certain degree. I don't know exactly what you have to do, but it costs a lot more in a historic zone. You know, so we've found that out as lenders. You know, personally, I didn't find it. I was the person that does my You sent out? Yeah, I sent out. They do some due diligence to protect me, and it ultimately protects the buyer.

Kamil Sarji:

Hmm.

Glenn Andreoni:

The borrower. So the borrowers are happy with me, because I saved them. Yeah,

Kamil Sarji:

I mean you've done it for so long. I've done it for so long. You have a process in place. I have a

Glenn Andreoni:

process, yeah. I've done it for a long, long time. Again, I'm not smiling. I'm just an average person that's just nervous with my money. And, you know, I try to dot my i's and cross my t's, basically. I'm conservative when it comes to that.

Kamil Sarji:

So now house is fixed up. It's gonna be sold. What happens then?

Glenn Andreoni:

What happens then is once they get it listed and they sell it and they call me up and they say, Hey, I sold the property. And I said, awesome. Hopefully you made a million dollars. You know, hopefully, because what they owe me is what they owe me. If they make a million, they still owe me X amount of money. If they lose money, they still owe me X amount of money. I'm not their partner, I'm just their lender. Like I explained, I have a lot of people that come to me and say, Glenn, let's partner up in this. I said, no, no, I know, well you can make a lot more as a partner. He said, I know, but I can lose a lot more as a partner. I don't want that. I'm happy with my basic percentage return. That's my platform. You know, that's what I do. And that's what I'm happy with. So I don't want to be a partner. No offense. I'm to a degree, I'm your partner, but I'm really your lender. Here's the terms set forth. Here's what I'm getting, irrespective of whatever you get. So you can go and spend a gazillion dollars, and I hope you make a million dollars, but if you don't, unfortunately,

Kamil Sarji:

you've seen people make million.

Glenn Andreoni:

Oh, I've seen people make a lot of money. Yeah. I've seen people make money. I've seen people lose it.

Kamil Sarji:

Borrowed.

Glenn Andreoni:

Yeah, yeah, no, no, we've done some rather large deals. Yeah, so yeah, no, I've seen people make money I've seen people lose money, you know It's but you have to do a lot of research in my opinion whether it's as a private lender or as an investor You know or as a realtor you have to know values of real estate I don't, quite frankly. I don't. I hire people to do that. I have a rough idea, but I don't know values. I hire people. You know, I hire people like you. You know, that understands the values of real estate. I don't. I don't. I can't get comps, and I don't have access to that, and I don't have time to do that, even if I did have access.

Kamil Sarji:

Yeah. Awesome. I think we covered everything. This is, uh, great information. I hope it helped some of the people out there. And if you have any questions,

Glenn Andreoni:

yeah, if you have questions, my email is Glenn, G L E N N, at R I realestatelaw. com, R I R E A L E S T A T E L A W. com Or my phone number is 401 334 4770.

Kamil Sarji:

Awesome.

Glenn Andreoni:

Thank you.

Kamil Sarji:

Yeah, thank you very much for stopping by. Awesome. Great

Glenn Andreoni:

questions. Thanks.

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